RBI increases state bond auction amount to Rs 52,120 cr from Rs 40,120 cr

The Reserve Bank of India (RBI) has revised the scheduled amount for the state bond auction on Tuesday to Rs 52,120 crore, up from Rs 40,120 crore. In the previous auction, 20 states had raised Rs 49,522 crore via debt sale.

 

Out of 13 states, Karnataka plans to borrow the highest amount of Rs 7,000 crore.

 

In the previous auction, the cut-off yield on 10-year state bonds was set in the range of 7.18 per cent to 7.27 per cent.

 

The heavy supply and a lack of demand from long-term investors, coupled with banks not buying aggressively due to liquidity issues, are likely to have pushed yields on state bonds higher. The cut-off yield on 10-year state bonds was set in the range of 7.17 per cent to 7.20 per cent in the auction conducted in the last week of February.

 

“This (increase in amount) will push yields higher, as liquidity deficit in the last quarter is usually high. States tend to borrow higher amounts in the last quarter, but this time there is a lack of investor demand,” said a dealer at a state-owned bank. “A 3-4 basis point upward movement in yield is expected,” he added.

 

The net liquidity in the banking system was in a deficit of Rs 2.07 trillion on Sunday, according to the latest data by the RBI.

 

States have borrowed Rs 1 trillion so far in the current month.